Australian consumers have been trapped in a recession.
The March quarter national accounts showed that real per capita household consumption has been negative for seven consecutive quarters on an annual basis, down 2.4% from its peak.
As illustrated below by CBA, the Australian consumer is the largest component of the economy. And the sluggish pace of growth recently has constrained Australia’s economic recovery.
While strong population growth (immigration) has supported aggregate spending, in per capita terms, real consumer spending is 2.3% below the peak in Q4 22.
However, with three 25 bp rate cuts delivered by the Reserve Bank of Australia (RBA) and real wages slowly rebounding, the Australian consumer is emerging from recession.
“A recovery is gaining real traction”, CBA economists Harry Ottley and Belinda Allen wrote in a note. “Key drivers of consumption are real household disposable incomes, household wealth and the labour market point to growth”.
Consumer sentiment has finally lifted together with green shoots appearing in CBA’s household spending data.
CBA expects the consumer spending recovery to gain traction through the end of 2025 and into 2026.
“We forecast further improvement in incomes and consumption as further interest rate relief is delivered”, Ottley and Allen wrote.
“We are six months since the first interest rate cut and over 12 months since stage 3 tax cuts”…
“Household wealth is rising and will support improvements in consumer spending”.
“Inflation is moderating and will place less drag on real incomes. And finally the labour market remains in a good position”…
“We are becoming more confident the improvement in consumption will be sustained”…
“We expect household consumption to move up to2.4%/yr by the 2H 26, around where our models suggest annual growth should be. This is good news and shows consumer spending patterns should normalise”, Ottley and Allen wrote.
Financial markets are tipping two or three more 25 bp rate cuts by mid-2026.
Additional rate cuts will reduce mortgage payments and free up household disposable income, thereby providing more stimulus for consumer spending.
